THE DETERMINANTS OF THE PUBLIC DEBT SUSTAINABILITY: A REVIEW
Werake, W.M.M.S.K
Department of Economics, Faculty of Social Sciences, University of Kelaniya, Sri Lanka.
senanik@kln.ac.lk
ORCID: https://orcid.org/0000-0002-5431-1141
ABSTRACT
DOI : 10.57075/jaf1112401
Public debt is a widely used macroeconomic concept in the economy. Given the resources required in development, the need to achieve minimum standards of living, and the urgency to alleviate poverty, governments may, at times, run up expenses that exceed their income. When governments face resource constraints, they often resort to borrowing to finance their expenditure plans. Debt sustainability has become a popular topic among countries with the advanced consequences of the recent global economic recession and debt crisis. The objective of this paper was to review existing literature on determinants of public debt sustainability. Public debt sustainability is an important element of overall fiscal development. Its impact also extends to the country’s overall economy, including the monetary sector. Therefore, assessing the debt sustainability of a country is very important. Thus, this study examined the key fiscal and macroeconomic variables that affect debt sustainability and identified theoretical approaches. The papers were reviewed using a thematic approach, based on the available past literature related to the theoretical and empirical analysis of public debt sustainability. In this context, a comprehensive search of the literature published in English between 2000 and 2023 was conducted. The paper was reviewed by examining over twenty-seven research studies after the screening process was completed. Quantitative, qualitative, and mixed-methods study reports were also used. Previous literature highlighted that there is a positive relationship between public debt and macroeconomic variables. Therefore, the study determined that public debt sustainability influenced primary balance, economic growth, exchange rate, and real interest rate behavior. Furthermore, improvements in the macro-economic factors to increase revenue and minimize expenditure will also contribute to reducing the debt-to-GDP ratio. The government should try to formulate a strategic plan to develop a mechanism and debt-sustainable policy. Thereby, a country can ensure a sustainable debt level over the medium term.
Keywords: Debt Ratio, Economic Growth, Exchange Rate, Primary Balance, Public Debt Sustainability
